TheStreet.com Sell-Off Sparked by Overblown Cramer Fears

On Thursday, TheStreet.com Inc. (TSCM) reported fourth quarter results. Although the provider of financial news and commentary earned $2.8 million, or $0.09 per share, which was much less than the profit of $4 million, or $0.14 per share in the year ago period, the numbers were in line with analyst expectations.

Revenue jumped 38% to $19.9 million from $14.4 million, while ad revenue surged 43%. Revenue from subscriptions and licensing rose a more tepid 8%. Nonetheless, the stock price fell apart.

As Barron's noted, the company's CFO Eric Ashman did acknowledge that:

The economic environment has grown more challenging over the past few months, and there is great uncertainty as to how weak economic conditions might become and the impact this might have on our advertisers, subscribers and visitors to our network of sites.

But that blanket statement was offset by an expectation that net margins and gross adjusted EBITDA in 2008 would be higher than last year. So what then is exactly behind the 16.4% drop in TheStreet.com shares since Wednesday?

According to a filing with the Securities and Exchange Commission on Feb. 14, TheStreet.com announced that Jim Cramer entered into a letter agreement amending an employment agreement dated August 1, 2005, and extended the term through April 15 of this year. That short-term extension was brought up during the conference call, and has sparked a lot of debate over why Cramer has not signed a long-term contract with TheStreet.com. It is spawning many unsubstantiated rumors and speculation that he may leave the company.

While it may indicate that there may be some negotiation going on between the two sides, the notion of Cramer, who is a co-founder, director, columnist and major shareholder of TheStreet.com, leaving the firm is ludicrous. The Cramer fears, and sell-off are overblown.

Comments

[Lisa]

You're probably right about the Cramer concerns being overdone, but the real story is what's happening to TSCM's page views, which you totally missed in your article. Look at my comment on this article:

seekingalpha.com/artic...

[Lisa]

The Cramer contract has been signed, but the stock hasn't recovered. I think that shows that the real concern here is TSCM's declining page views, not the Cramer employment risk.

[Lisa]

Latest from ThinkEquity analyst William Morrison:

TheStreet.com, Inc. TSCM – $7.90
Accumulate Price Target: $9.00
TSCM: Likely To Get Worse Before It Gets Better; Lowering Rating And Estimates
THINK ACTION:

TheStreet.com reported a disappointing 1Q08, as lower-than-expected advertising revenue led to an across-the-board "miss." We are lowering our rating from Buy to Accumulate and reducing our price target from $14 to $9 on significantly reduced estimates (detailed later in this report). While we continue to like TSCM's positioning, management team, and longer-term growth prospects, we are concerned about the impact of the economic environment on TSCM's advertising business during the remainder of FY08. Our $9 price target is derived using an average of 10x 2009E EBITDA of $21M and 17x our fully-taxed 2009E FCF/share of $0.47.